Sunday, December 13, 2009

HarperCollins & Friends: In the Footsteps of Dinosaurs

“I’ve got this wonderful idea: we’re going to chop down some trees up in Canada and we’re going to ship them to a paper mill…and then we’ll ship that down to some newspaper and we’ll have a whole bunch of people staying up all night writing things….”

—Warren Buffett, explaining the death of newspapers, May 4, 2009

Buffett was talking about the newspaper business, but he may as well have been describing the book publishing business, too.

Having had some experience in dealing with book publishers (i.e. “Pilgrimage to Warren Buffett’s Omaha,” McGraw Hill, 2008), your editor can confirm that the book publishing business is doing its best to follow the newspaper publishing business into the La Brea Tar Pits, as quickly as possible.

Now, for the record, book publisher are full of very intelligent people who work hard doing the best they can to publish quality printed material. And they’re nice people to be around, too—at least, for a writer—because theyreally like books. They obsess not only about the words inside each book, but they take enormous pains to get the cover artwork and the jacket design and even the physical look and feel of each book just right.And they do all that not only for the U.S. versions of their catalogue: when the Japanese edition of “Pilgrimage” came out this past summer, our publisher raved about the finished product. “It looks gorgeous,” she said.And indeed it did—although certainly nothing like the English version of our journey to the heart of Berkshire Hathaway.

Instead of pictures of Warren Buffett on the cover, and the use of bold colors along the borders to attract the eye (as in the photo to the right of this virtual column), the Japanese book cover was pure white and somewhat compact. Inside were thick rich pages covered with beautiful, black-typed ideographic characters printed in columns running right to left.It even had—and we are not making this up—a silk-tasseled book marker worked into the binder.

It was like holding the Beatles’ White Album for the first time.

And we mean the White Album, not the CD version of the Beatles classic. “Gorgeous” though it was, the book seemed like something out of the 60s: thick, costly and a relic of the past.

After all, the world is awash in “gorgeous” printed material.Last year alone, 275,000 new books were published in the United States alone. (That’s 5,288 a week, for those of you who think you might want to write a book some day.)

Meanwhile, simple economics are compelling the book world to move online, and those simple economics are as compelling as they were for the newspaper world a few years back.

“All we have to do is pick a topic today for a book that we hope will still be timely a year and a half from now, when it’s actually published. Of course, we’ll have to pay the author in advance for work that might or might not be any good, and also hope the author gets it done in time…

“Meanwhile we’ll design a book cover that might or might not be attractive when the book comes out; cut down a bunch of trees, turn them into paper, line up a printer for the cover, line up a printer for the book, estimate how many copies we might possibly sell if everything goes just right, print that many copies of the book, and ship them in big heavy trucks to distributors and booksellers while hoping that somebody influential reviews the book.

“Then we’ll pray enough people buy the book so that there aren’t any books we need to take back.”

You might think—given the hit-and-miss, but mostly miss, nature of this so-called business model—that a rational book publisher would gravitate swiftly to the online business model in order to eliminate the monstrous waste that goes on at every stage of the book publishing business—i.e. printing and shipping millions of books each year that are highly likely to be irrelevant by the date they reach the stores, and having to take them back.

But you would be wrong. The book publishers are fighting the online delivery of books.

Here’s how HarperCollins’ CEO Brian Murray has reacted, according to the Wall Street Journal:

Mr. Murray said that if new hardcover titles continue to be sold as $9.99 e-books, the eventual outcome will be fewer literary choices for customers, because publishers won't be able to take as many chances on new writers.

Mr. Murray is pursuing the absolutely correct—but fatally flawed—understanding that a $9.99 e-book will not cover the cost of a manufacturing and distribution system built around $30 hardcover books, i.e. his system.

What he does not grasp is this: if he doesn’t offer the books at that price, any number of virtual book publishers will rise up and take chances on precisely those authors Mr. Murray thinks will not be chanced on any more, and his model will disappear as swiftly as that which produced the original White Album.

Alas, Mr. Murray is not alone among his La Brea Tar Pit-marching brethren: Simon & Schuster and the Hachette Book Group also recently announced they would delay offering e-books in an effort to avoid cannibalizing new hardcover editions.

But the ground is shifting beneath their feet, and the book publishers find themselves stuck in something that seems to grip them tighter the more they struggle. Ahead they can see the newspaper companies, encased in the black bubbly, gasping for air and barely able to breathe.

The content contained in this blog represents only the opinions of Mr. Matthews, who also acts as an advisor: clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.

Jeff:Amen. I received my Kindle a month and a half ago. Within a day it was clear to me that the physical book business has the future that the monastic scribe business did when Gutenberg first started cranking out bibles.American Bandersnatch

One would think a quick glance at the growth rates of Kindle and Nook usuage would be enough to convince publishers to adopt. I would think the one brave publisher that fully adopts this model should see better margins down the road. How much cost of the $30 hardcover is related to paper, ink, etc......

Before there was Hulu there was Lulu.com. They figured this out some time ago, but funnily enough the punters don't seem to have voted with their dollars. It seems that the promotional capabilities of a publisher have value.

Thanks for an interesting blog post about the publishing world (and Buffett, too). I have been an ebook author for many years, so I know the business end of publishing. The hard-copy publishers are indeed being dragged kicking and screaming into the 21st century. I don't even bother to submit to such publishers any more. I have a few e-pubs that I am most happy with. While I've yet to make a real living out of it, it's something I do along with day trading that helps our household run, and affords us a few luxuries.

What do I write? Erotic romance. Search for my name in Amazon if you're curious. :)

Thank you Jeff for bringing up this topic. It is interesting that with the amazing number of digital technologies available to many industries (including publishing), they choose to specifically exclude or hinder those despite their own customers wanting them.

As far as lulu/hulu, Anonymous is cleverly forgetting the second part of equation, where content providers made sure to kill competition with ridiculous limitations and high content prices and continue to do the same with hulu.

You know, I still REALLY like paper books despite also loving my Kindle. Something about dogearing pages, highlighting, writing in the margins and "flipping" through them. You can do all that on a Kindle, but it just isn't the same.

Anonymous: I'm more inclined to read on my Kindle, unless I'm doing research--in which case the paper type of book is, as you say, far better.

But I also read books on the iPhone with no trouble, and I suspect our kids, who have no trouble reading zillions of text messages on absurdly tiny cell phone screens, will never see the need for a hard-copy book once a good tablet iPhone is out there.

Just a question Jeff, Shouldn't the book publishing business be compared more to the music publishing business than the newspaper business? It still supports your thesis, but I am not sure the kindle is as transformative as the ipod. I am a recent college graduate and nobody I know owns a kindle or wants to own a kindle. If we read books, we still prefer the hard copies. That said, I am probably just splitting hairs.

Other than that, I really like the blog and thought your book was an honest look at Berkshire, something few people are willing to do.